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Support for self-employed - Scheme to go live mid-May

This note has been prepared from information available at 4 May 2020. HMRC guidance was last updated 4 May 2020.

Self-employment Income Support Scheme

This is a scheme to help some self-employed individuals (including members of trading partnerships) who have lost income due to the Covid-19 (“Coronavirus”) pandemic.

HMRC have published information on how this scheme will operate along with details of how the claim will be calculated.

How to claim under this scheme

HMRC will start to contact individuals, in the week beginning 4 May 2020, who they believe to be eligible based on figures reported in tax returns for 2018/19 and the two previous years.

They will make contact by one of these methods, depending on the details they hold:

email if they hold an email address,

SMS if they hold a mobile number, but not an email address, or

letter if HMRC do not hold either.

The contact will explain how a claim can be made after the claim portal opens from 13 May 2020 and the information that will be needed to make the claim. The portal will be opened in stages and will be accessed through the government gateway account.

However, not all individuals contacted will be eligible, as HMRC will not know whether an individual meets all the conditions. (See below for the conditions.)

HMRC have set up an online “Eligibility checker” tool where individuals, or their agents, can check whether or not they are eligible.

If this tool shows that you are eligible it will advise the date that a claim can be made.

There will be a system to request a review of an ineligible decision and agents should be able to assist with this.

We understand that the claim must be made by the individual taxpayer who will be shown detailed calculations prepared by HMRC. The individual will need to agree that they meet the conditions and are eligible to make a claim, confirm that the business has been affected by coronavirus and supply bank account details into which the grant should be paid.

Agents can advise on the expected calculation and eligibility conditions but cannot make the claim on behalf of clients.

If a claim is approved the payment will be made within 6 working days.

HMRC will check claims and recover payments if the claim was dishonest or inaccurate.

An alternative way to claim will be set up for individuals who cannot claim online.

Eligible individuals

The scheme will be available to self-employed individuals (or partners in a trading partnership) who meet all the following conditions:

have submitted a Self-Assessment tax return for 2018/19

traded in the tax year 2019/20

are trading at the time of applying, or would be except for COVID-19

intend to continue to trade in the tax year 2020/21

have lost trading/partnership trading profits due to COVID-19

The scheme is limited to individuals meeting at least one of the following conditions:

Trading profits/partnership trading profits in 2018-19 were less than £50,000 and these profits constitute more than half of the individual’s total income.

Or

Average trading profits in 2016-17, 2017-18, and 2018-19 were less than £50,000 and these profits constitute more than half of average total income in the same period.

See below for definitions of “trading profits” and “total income”.

If trading started between 2016 and 2019 HMRC will only review those years for which a Self-Assessment tax return reporting self-employed income has been filed.

This support is not available to anyone who started self-employment after 5 April 2019.

Self-employed individuals can continue to work under this scheme. (This is different to the rules for Furloughed employees.)

Amount of the grant

The amount of the taxable grant will be calculated as follows:

The grant will be a monthly amount based on 80% of the average trading profits of 2016-17, 2017-18, and 2018-19.

The average will be calculated by adding the total of the trading profit for these 3 tax years and dividing by 3.

This calculation will be adjusted where continuous trading does not cover this 3 year period.

The maximum grant will be £2,500 per month. The maximum for 3 months will therefore be £7,500.

How HMRC will calculate trading profits and total income

Trading profits

HMRC will calculate trading profits (or losses) from the tax return figures for total trading income (turnover) and deducting allowable business expenses and capital expenditure.

Allowable business expenses include:

office costs

travel costs,

clothing expense (for example uniforms)

staff costs (and subcontractor costs)

stock or raw materials

financial costs (for example insurance or bank charges)

business premises costs ,

advertising or marketing

training courses related to the business,

The following are also allowed:

the trading allowance

capital allowances

qualifying care relief

flat rate expenses

Trading profits will be calculated before deducting

any losses carried forward from previous years

the personal allowance

If this calculation results in a trading loss for a year then that negative figure is used in HMRC’s calculations.

If individuals have carried on more than one trade then all trading profits and losses will be added together.

Total income

Total income is the total of the following:

income from earnings

trading profits or losses

property income

dividends

savings income

pension income

miscellaneous income (including social security income)

We will continue to monitor Government announcements and provide updates as the situation evolves over email, on our website, LinkedIn and Twitter account.